In a relief to private telecom players, the Delhi High Court has ruled that

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no tax would be deducted at source on payments to be made by private players like Bharti and Vodafone (hitherto Hutch) and others to PSUs - MTNL or BSNL - for getting interconnection.

Telcos are required to set up their own equipment and necessary infrastructure for operating and maintaining their networks. Interconnection merely helps completion of a call between two networks.

Any operator who seeks interconnection from MTNL or BSNL needs to pay a fee as fixed by the telecom regulator Trai and the same (payment by private operators to PSUs) is reflected in their receipts for the taxation purposes.

The court in its order pointed out, "the interconnect charges/port access charges cannot be regarded as fees for technical services".

Clarifying that the companies were not liable to deduct tax at source, the order dismissed appeals of the tax department and said, "the parties (telecom companies and MTNL/BSNL) are left to bear their own costs".

The tax department held the view that the telcos were liable to deduct TDS when they made payments in respect of the interconnect or port access charges as it was a technical service. The three firms, Bharti, Hutchison and Escotel, however,contended that collection of fees for use of a standard facility provided to all those willing to pay for it does not amount to the fee received for technical services.

The court also sided with the submissions of the telcos that "unless and until, there is an element of human interface, the facility of interconnection/port access cannot be regarded as a technical service".

The interconnection service between the two networks is provided by MTNL or BSNL at interconnection points known as Ports and interconnection charges are paid by the interconnection seeker (private companies) to the interconnection provider (MTNL and BSNL).